Farmland values to hit £10,000/acre by end of decade

Property markets are in a very different place now to where they were 12 months ago.

This time last year the Knight Frank Farmland index had just recorded falling prices for the previous three quarters.

Now we have seen 12 months of unfettered growth with a 5.4% rise in the value of English farmland in the first three months of 2010 alone.

“Prices are now back at record highs – the average value of English farmland is £5307/acre, according to our index – and we expect further price rises over the rest of the year and beyond,” said Knight Frank’s Andrew Shirley.

“Ultimately, we believe average values will reach £10,000/acre by the end of the decade, if not before.”

Although the forthcoming general election might have been expected to dampen the market somewhat this year there have been no signs of this happening yet. Knight Frank reports to have been consistently selling land for over £7000/acre in 2010.

There are always concerns that a new government, or an emboldened re-elected one, will make changes to Agricultural Property Relief. But the current Labour chancellor left APR untouched in his recent pre-election budget, suggesting no shift in policy if the party clings on to power. If the Conservatives are elected, APR would be an unexpected target for a new administration with much to do.

Knight Frank, therefore, expects to see total growth of about 10% in English farmland values in 2010. Even if unexciting commodity prices over the next year or two hold farmers back from paying some of the punchier prices offered when wheat was at £180/t, the ongoing weakness of sterling will continue to attract overseas investors to the UK farmland market.

“As the global economy recovers, this trend will continue and 10% growth in 2011 is a strong possibility if the current shortage of land for sale continues,” suggested Mr Shirley.

“Soft commodity prices, while yet to follow equities and other investments back upwards, will start to regain their value and it would seem unlikely that there will be a huge rush of farmers looking to sell.”

“The situation in 2012 and 2013 becomes a little more hazy as the ramifications of the next round of CAP reform slowly starts to unfold.”

The outcome of the Campaign for the Farmed Environment could also have a bearing on land values. If this voluntary scheme is considered not to be bringing sufficient land under environmental management, compulsory measures could be brought in. If a percentage of land is forcibly taken out of production, this could create some interesting drivers in the market – both negative and positive.

Despite this, the firm believes overall average annual price movements will be upwards for the foreseeable future.